Monthly Archives: May 2014

More Than Money – Sharing Time

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It’s common to think of volunteering as giving time to a cause.

The most powerful lesson of hospice is the reality that, short of organ donation, I can’t give time to anyone.

What I can do is share time.

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In most of our roles, we can be swapped out. Absent someone to love, this can be a lonely reality. Family roles, particularly parenting children, is an area where it’s more difficult to replace us. Interestingly, these are roles where love dominates. Kids can survive just about anything if they are supported by the knowledge that they are loved.

My family is central to my life’s work. It’s the most direct way I can influence the world. Volunteering is most useful when it makes me a better member of my family. By “better” I mean wise.

Given that I’m married to a woman where “the tone is the message,” I want to spend time in situations that improve my soft skills. My family, and my marriage, doesn’t receive much benefit when I improve my technical knowledge.

Gordo and the Easter BunnyVolunteering puts me in situations where I am truly clueless. For at least a few hours a week, it’s good to realize that I’m clueless! Specific to hospice:

  • there’s no ability to fix anything
  • I’m not empowered to do anything other than serve
  • my best course of action is nearly always “quiet presence”
  • I create a habit of doing what needs to be done
  • I do my work without expectation of being thanked, or paid

If you have young kids, or elderly parents/grandparents, then you may find a lot of similarities with my list and your role.

Most of the friction that I observe in families is due to someone seeking to fix a situation that isn’t their domain, or doesn’t have a solution.

In terms of self-improvement:

  • Volunteering rewards me if I act in a manner completely different than my typical persona. Until I started volunteering, I had never received positive feedback for being a quiet, humble helper.
  • Caring for the sick has an unavoidable benefit of increasing tolerance. You can’t help but change your opinion of people when you’re serving them.
  • Making a habit of good deeds gives me ammunition to take on the voice in my head that tells me that I’m falling short.
  • Pushing my fear envelope is exciting and increases my ability to think clearly in situations that are emotionally charged.
  • Work that challenges the heart leaves me feeling grateful and gratitude is an effective antidote for most everything that ails me.

Whatever your field, when you hear the call, I urge you to follow it.

Goodness through action.

Hidden Costs of Investing

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My career in finance was built on our collective reluctance to act on what I’m about to explain.

I know that it’s a pain to change who manages your assets. However, you give up a TON of money by not forcing yourself to choose the lowest cost provider.

How much? Let’s see if we can find out!

Active

I’m 45 years old and I want to draw down my retirement assets at 70. For each $100,000 of my portfolio, what does it cost me to use active management vs the lowest cost provider of passive management?

The table above assumes that you’re not getting (legally) ripped off. A fee/expense differential of 1.2% per annum isn’t out of the ordinary. I’ve worked with vehicles that had total fees and expenses of up to 5% per annum.

The number that should catch your eye is $131,853 OF LOST RETURN per $100,000 OF INVESTMENT. The extra 1.2% of fees means you miss out on the equivalent of 131% of your initial investment over the life of this deal.

By the way, when I help people review the true cost of their portfolios, their fees and expenses are usually more than this scenario. I know it hurts to think that you’re being ripped off but please read through to the end!

What about professional investors? They must be smarter, right?

I don’t know about smarter, but I do know that large institutions are treated very well by their managers.

Government pensions, insurance companies and high-net worth families. They have invested with the firms that taught me finance, and we did very well for them. However, we also did very well for ourselves.

We did this by offering terms called “two and twenty” – we received an annual fee of 2% of the assets that we advised and 20% of the gains that we generated. What’s that look like?

Fund

With 10 years at 7%, a passive investor would receive $195,797 for each $100,000 invested. Using the terms of a professional manager, the money back falls to $150,312 per $100,000 invested. The reduction is due to the impact of fees ($32,908) and profit sharing ($12,577).

The pros are giving away 48% of their return. I’ll leave the “why” for Michael Lewis, Taleb and Kahneman to explain.

But it gets better!

If you live in a large American state then, odds are, your state pension invests in something called a “fund-of-funds.” A fund-of-funds is an active manager that invests in “two and twenty” funds. Two sets of fees. The scale of the resulting underperformance is breathtaking.

Why does this matter to you?

Here’s why. A financial adviser that invests your money in a pool of active managers is delivering a fund-of-funds approach to your portfolio (and you’re probably getting screwed by fees).

All of this is legal and has to be disclosed to you (as investor and/or state taxpayer).

If you ask about total, look through cost of investment and your adviser starts stalling, then you have a problem. 

Also be wary when advisers produce a fee example for a “tax-free investor.” You and I pay taxes and most changes in portfolio mix have a cost to us.

TIP: The best investment you can make is knowing the true cost of your investment strategy. Get it done this week!

“Little” percentages cost you big dollars over time.

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Make the call and ask… “Fees, expenses, transactions costs, taxes – please tell me everything that I’m paying all the way through to the final investment.”

When you get the information, go compare to what a company like Vanguard can do for you.

The Most Beautiful Man In The World – Talking To Kids About Dying

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Orion

Did you know that Orion was the most beautiful man in the world? Here’s a link to his story – a personal favorite of mine.

How can I talk about death without freaking out my kids? First up, I don’t start the conversation. However, I don’t avoid it either.

There is a split between older (4-6 years old) and younger preschoolers (2-3 years old) and my approach differs between the kids, as well as how they are feeling when they bring up mortality.

My first conversation about death with my son (2.75 years old) started when he picked up a line that stuck in his head, “David’s Daddy Died.” At two, death doesn’t have meaning and I don’t want him to get locked onto thinking that mom/dad might disappear on him.

From an early age, we’ve taught him that “we will be coming back” when we leave him. Indeed, a key milestone of childhood development is the ability to self-comfort when separate from our parents for 1, 3, 5 and 7 hours. We started this process, gradually, with all our kids as soon as possible.

Axel’s nature means that he experiences less separation anxiety than our other kids. Still, he looked to me for an explanation about “David’s Daddy Died.” Here’s what I do each time…

  • I go down on one knee
  • I look him in the eyes
  • I open my arms for a hug
  • I say, “YOUR Daddy’s right here”
  • I give him a huge hug

Sometimes it takes a couple repeats of… “Your Daddy’s right here” but it always works to bring him to the present, give him reassurance and shift us back to whatever we were doing.

With a 4-6 year old, the conversation is different. My oldest understands death and can have questions about it. She remembers her great-grandmother (who died on this day one year ago) and has asked me about it.

  • What’s death – your body stops working
  • Is she coming back – no, her body is finished
  • Is it like sleeping – no, it’s different
  • Daddy, are you going to die – Sweetie, everything ends
  • How long until you die – likely more than 40 years

And the biggie… Daddy, where will you be when you die?

  • Once again, I look her in the eyes
  • Put my hand over her heart
  • And say, “I will always be with you. Even when I’m not with you, just close your eyes and you will feel me in your heart.”

I then choose a person – perhaps my grandmother, or her mother – and we both put our hands on our hearts and think about that person. “See you can feel the person, even when they aren’t in the room. That’s where you go.”

When they get a little older, I’ll teach them how to spot Orion in the sky and share that he was the most beautiful man in the world.

When they see Orion, I’ll tell them to always remember that I love them.

See me beautiful.